Last year it was announced by Finance Minister Pravin Gordhan in his national Budget speech that new regulations governing the taxation of trusts would be instated. However, with little communication from Treasury throughout the year, much confusion ensued as to whether the legislation will form part of the SA tax reform, as undertaken by the Davis Committee, or whether this will be dealt with as a separate matter.

As there are implications to this announcement for all parties to a trust, and broader, the discussion should form part of the Davis Tax Committee’s investigation into the South African tax system, rather than doing it on an ad hoc basis or separate from the Committee’s work.This is the view of Professor Willie van der Westhuizen, head of Trust Law and Estate Planning at Millers Attorneys, speaking at the Citadel Trust and Taxation laws seminar held in Johannesburg earlier this year. Van der Westhuizen says that the issue of trust taxation should be integrated into the Davis Committee’s terms of reference and eventually their report, in order to save costs and time.Madeleine Schubert, Fiduciary and Tax Specialist at Citadel Wealth Management, says when the legislation was proposed in February last year, there was much confusion as to how this would impact trusts and trustees. “This is why Citadel decided to host the workshop in order to clarify what the legislation means and how it would impact parties of a trust.”Professor van der Westhuizen says the most important implications are the un-doing of a rather complex set of rules pertaining to the taxation of trusts, which may also affect the broader tax base and the economy. “This is why the Davis Tax Committee, under instruction by the Minister, should discuss the taxation of trusts as part of their investigation into the entire tax system, and not as an ad hoc or separate investigation. Should the investigation not fall under the Davis Tax Committee, the taxpayer can end up footing the bill for a separate inquiry, wasting both time and money, as the debate will not form part of an integrated review.”In addition, van der Westhuizen says that although part of Treasury’s reasoning of overhauling the legislation is to curb avoidance of estate duty through trusts, that this was also the objective of previous commissions.“The objectives of previous tax committees such as the Margo Commission and the Katz Commission included similar investigations into estate duty. However, it was found that because of the insignificant portion that estate duty forms of the total SA revenue, not too much energy be spent on redrafting somewhat complex legislation, and continue to apply the existing anti-avoidance rules. This conclusion should be remembered when discussing the implications of any new regulations.”“The trust remains the only real protective vehicle or tool if applied correctly as part of a proper holistic estate plan that addresses all the sub-plans such as the tax plan, the insurance, investment retirement plans as well as the protection and family relationship plans. It is therefore vital that if any changes do come into play, this should be effectively communicated to the public.”